1

Overview�a problem statement

�Outsourcing can be enterprise-wide, by location, by fleet segment, by maintenance

category, by specific work item or vehicle

�Multiple factors bear on outsourcing decisions, including:

– Capability and capacity

– Cost effectiveness

– Quality and timeliness of service

– Readiness and immediate availability of vehicles/equipment (emergencies, other priorities)

– Strategic issues, such as “reversibility” of outsourcing choices -- once taken

�Private sector models for revenue-generating fleets do not translate well for use in

most DOT fleets

A decision framework is useful -- for systematic outsourcing analysis

and decision-making for public sector non-revenue fleets

2

Decision challenges for DOT fleets�

�Market availability of services needed

�Reversibility of outsourcing decisions

�Scale and variety of fleet/equipment types and maintenance activities

�Workforce utilization and displacement

�Quality measurement and expectations

�Ownership, control, and reserve fleet implications

�Cost development and “apples-to-apples” comparison

�Procurement policy constraints

3

Purpose and goal of the outsourcing decision framework�

#to enable a systematic process for evaluation of state DOT

fleet and equipment outsourcing and privatization decisions.

On a practical level, the decision framework and tools can

help agencies achieve acceptable levels of service quality

and cost savings

4

Outsourcing decision framework requirements�it should:

�Be able to address the range of outsourcing options possible—from completely

outsourcing the fleet maintenance function, to outsourcing a single repair location,

to outsourcing specific activities—fleet-wide or a single location

�Capture the general characteristics of DOT fleet profiles and maintenance, breadth

of repair, and replacement options, so that it will be widely applicable and

adaptable to most agencies

�Allow practitioners to incorporate strategic, analytical, and operational decision

criteria

�Allow consideration of local, regional, or statewide operating imperatives

�Recognize, define, and describe process differences between internally and

externally driven outsourcing initiatives

5

Shop workload

Shop priorities

Full direct and indirect

costs

Performance/quality

Policy/mandates

Internal capability

Key factors considered in the decision framework�

�Size and composition of fleet

�Variety of maintenance activities performed

�Effects of key influence factors

�Cost of both fleet and non-fleet activities of

maintenance personnel

�Evaluation of capabilities available in local

and regional service markets

�Agency-specific procurement policy and

rules constraints

�Long-term implications and risks associated

with outsourcing.

minor repair,

preventive maintenance,

overhaul,

heavy repair

6

Forms of outsourcing�

FormsFleet

“Ownership”

Role and Responsibility

Consideration in

the decision

framework

Maintenance

Service

Performed by

DOT

Management

and Policy

Responsibility

Financial

Responsibility

Asset Transfer Private Sector Private SectorLimited, case

by casePrivate

Strategic

Alternative

Outsourcing State DOT Private SectorFull control—

state DOTsState DOT

Primary

Alternative

Insourcing State DOT State DOT State DOT State DOTPrimary

Alternative

Managed

CompetitionState DOT

Public or

private

depends on

competition

Full control—

state DOTState DOT

Strategic

Alternative

Public–Private

PartnershipJoint Private Sector Joint Joint

Strategic

Alternative

7

Approach taken for the decision framework�

�A commonly accepted typology of vehicle/equipment classes and maintenance

types was defined for the logic model and the case examples. These may be

redefined by any user of this logic framework

– Six vehicle/equipment classes, grouping similar configurations and maintenance characteristics

– Five general maintenance types, grouping activities with similar characteristics and frequency

�A core three-dimensional decision variable was defined to allow for systematic

expression of the may possible alternatives for outsourcing and for consistency in

evaluating insourcing and outsourcing options

�Four major process groups were laid out in the model (with sub-processes defined),

and a fifth stage in the logic for synthesis of results

�The process was refined through case-testing for plausible scenarios

8

Vehicle/Equipment classes used for framework development�

Equipment Class Examples

Small engine Chainsaws, grass trimmers, lawnmowers

Seasonal attachments Plows, salt and sand spreaders, mowers

Light duty Sedans, light pickup trucks, light trucks

Medium duty Heavy pickups, Medium dump trucks

Heavy duty Heavy trucks

SpecializedTractors, loaders, graders, backhoes,

oil spreaders

9

Maintenance types�

Maintenance Types Examples

Preventive Maintenance

planned inspection, maintenance and service

include inspection and replacement of minor

parts and consumables

Minor Repair

Repair/replace specific parts/components that

fail or wear such as TBA, electrical system

components, brakes, alternators

Major Repair

Component/system repair with special tools

or equipment, typically requiring more time

and training

Overhaul and Rehabilitationincludes extensive renewals of power train,

chassis, and body systems

On-Road Repair includes mobile road-call response, with on-

site repairs or vehicle recovery

10

A core three-dimensional decision variable was used�

The value of the decision variable represents three possible outcomes of the

decision-making process: (1) the process favors an insourcing decision; (2) the

process favors an outsourcing decision; and (3) the process gives a neutral or

equivocal result – (within the confidence margin for the ratings and estimates used).

The handling of the equivocal result is discussed further in subsequent slides.

The value of the decision variable represents three possible outcomes of the

decision-making process: (1) the process favors an insourcing decision; (2) the

process favors an outsourcing decision; and (3) the process gives a neutral or

equivocal result – (within the confidence margin for the ratings and estimates used).

The handling of the equivocal result is discussed further in subsequent slides.

11

A full range of outsourcing alternatives can be addressed by the core decision variable�

�Day to day: Outsourcing decisions made independently at individual fleet locations.

These outsourcing decisions can range from outsourcing a single type of

maintenance for individual equipment classes to outsourcing the entire fleet

maintenance services at a particular location. State DOT repair shops often need to

make outsourcing decisions for a single type of repair for a single particular vehicle,

on a case-by-case situation

�Operational: Outsourcing decisions made at district and regional levels. For

example, a decision can be examined to outsource the entire district’s heavy repair

services.

�Strategic: Outsourcing decisions made at the fleet-wide level. This can be driven by

legislation, policy direction, agency’s strategic plan, or recommended by fleet

managers after thorough performance analysis. Such outsourcing decisions may

suit most—but not all—situations in the field, so they are usually implemented via

policy, guidelines, phase-in plans, and exception rules (examples follow)

12

Example of decision scenarios addressed by the decision model�

Organizational

DimensionScenario

Equipment

ClassMaintenance Type

Outsourcing

Nature

Individual Locations

(i.e., a local

garage/shop)

1 Specific unit Single type Day-to-day decisions

2 Single class Single type Operational decisions

3 Single class All types Operational decisions

4Multiple

classesSingle type Operational decisions

5Multiple

classesAll types Operational decisions

Regional (i.e., District-

wide all garage shops)

6 Single class Single type Operational decisions

7 Single class All types Operational decisions

8Multiple

classesSingle type Operational decisions

9Multiple

classesAll types Operational decisions

Statewide (including

all fleet locations)

10 Single class Single type Strategic outsourcing

11 Single class All types Strategic outsourcing

12 Entire fleet Single type Strategic outsourcing

13 Entire fleet All types Strategic outsourcing

13

The high-level view of the decision framework�

14

4.2 Do costs

strongly favor

IN sourcing?

OUT sourcing

choice

IN sourcing

choice

4.5 Refine Cost-

Risk-Quality

Analysis

4.1 Acceptable

In-sourcing

Risk & Quality?

4.4 Do costs

strongly favor

OUT sourcing?

4.3 Acceptable

Outsourcing

Risk & Quality?

Policy and

Strategic Options

(see next slide)

IN source

InclinationYes Yes

Yes YesOUT source

Inclination

3.1 Identify Needed

Service Providers

3.2 Capable Service

Providers Exist ?

2.1 Assess Internal

Capability vs. Demand

2.2 Can Capability be

Adjusted for Demand ?

Go to

Process

4.3

Go to

Process

4.1

Yes

OUT source

Inclination

IN source

Inclination

1.1 Select Potential

Outsourcing Candidates

Candidates Are Mission

1.3 Determine if

Candidates Are Mission

Critical?

1.4 Determine if

Service Market

Competitive

1.2 Identify Legal and

Policy Constraints

1.5 Organize

Outsourcing

Alternatives

Yes

Y

e

s

No

N

O

IN source

choice

NoNo

No

NoYes

No

No

Three source decision outcomes need to be

expected, since:

•Cost/Pricing estimates can be flawed

or approximate, and usually apply only to the

near-term

•Quality and performance are measurable but

may include subjective evaluation

•Risk is more subjective, longer-term, and

depends on the priorities and weighting assigned

by decision-makers

The full decision process framework�

15Filename/RPS Number

IN source

Inclination

OUT source

Inclination

4.2 Do costs

strongly favor

IN sourcing?

OUT sourcing

choice

IN sourcing

choice

4.5 Refine Cost-

Risk-Quality

Analysis

4.1 Acceptable

In-sourcing

Risk & Quality?

4.4 Do costs

strongly favor

OUT sourcing?

4.3 Acceptable

Outsourcing

Risk & Quality?

Policy and

Strategic Options

Yes Yes

Yes Yes

NoNo

No

No

Three source decision

outcomes need to be

expected since:

•Cost/Pricing estimates can

be flawed

or approximate, and are

usually apply to the near-

term

•Quality and performance

are measurable but may

include subjective

evaluation

•Risk is more subjective,

longer-term, and depends

on the priorities and

weighting assigned by

decision-makers

Choices and Options�

16

The tradeoff scenarios�

In the illustration, three out of nine outcomes in

the cost-versus-performance and quality tradeoff

analysis result in an outsourcing decision. In-

sourcing would be considered if the external

service providers do not have either the capability

or capacity to provide adequate service quality

irrespective of cost competitiveness.

If private sector costs are prohibitive and

performance and service quality bias is neutral,

in-sourcing would be the obvious choice. Four

out of nine outcomes in the cost versus

performance and quality tradeoff analysis likely

result in an in-sourcing recommendation.

As shown, the decision-makers would need to

explore strategic and policy options if both cost

and performance and service quality bias are

neutral or equivocal.

Or if the external service providers have sufficient

capacity and capability and can deliver much

improved service quality but their costs are only

somewhat higher, a careful review of cost factors,

and possible benefits of better service standards

would be worth considering before arriving at a

final decision.

17

Executing the decision processes�tools and suggestions

�The decision process can be executed using straightforward spreadsheet approach to “rack

and stack” quantitative and qualitative ratings information each step of the way. Templates and

case examples are provided

�The logic process is designed for the user to skip over unnecessary steps when the

conclusions are known already – and to address the “show-stoppers” first, avoiding

unnecessary effort in the cost-performance assessment, if not needed

�The typologies and be adjusted and tailored to fit current definitions and practice, at any level

of breakdown

�This is a decision logic process – not design – so estimates can supplement hard data, to the

extent needed. Refinement is needed only if the conclusions are very close

�Whether actual or estimated, costs must be full-cost on both sides of the decision tradeoff.

Most accounting is not activity-based, so a consistent method is needed to include indirect cost

factors for insource option, and to include acquisition and management for outsource options

(real-cost comparisons)

18

Wrap-up�

�The NCHRP Report 692 is out and available

�Read through the report (only about 40 pages and appendix -- many readers will quickly digest

it through experience)

�Walk through the cases and template examples

�Try out the logic process with estimates available information on recent real experience with

outsourcing decision issuesL

�The logic framework will provide a solid basis for thorough and transparent consideration of

outsourcing decisions